What is asset tokenisation and why many industries will be disrupted?

Real estate, investment management, logistics, insurance, art, VCs, collectibles, trademarks, space travel, robotaxis, AI,... will all be heavily impacted.

Tokenisation means that you convert partial ownership of an asset into a crypto token, e.g. 1000 whiskey tokens can reflect one barrel of whiskey. Whoever owns the token, owns a fraction of the asset, e.g. own one whiskey token and you own 1000th part of a barrel of whiskey. You can also benefit from any revenues or profits coming from the asset, e.g. own a fraction of a flat and you can receive a fraction of the flat's rental. So if you own a fraction of a flat, a stock, an artwork, a container ship, a factory, a recycling plant, a life insurance policy,.... then you get all the benefits, e.g. rental, dividends, revenues, carbon offsetting tokens, premiums,.... but also the drawbacks, e.g. fire, market crash, pirates, bankruptcy, death,... In general each token can have risk associated. Even risk can be tokenised, e.g. the holder of a fire protection token will receive premiums each month but will have to pay fire claims up to £10K.

Now the interesting thing is that tokenisation can bring lots of new benefits. It can be used to crowdfund very large projects. A million people can pay £1,000 each and pay for a £1B wind farm which afterwards gives each token holder a revenue share from the energy produced. Expensive art investment is possible by a community to the benefit of all. All types of expensive assets can be acquired by a group of investors.

Real estate investment has always been cumbersome because large transactions always have been binary, you own or you do not own a building. In economical boom times, you cannot construct buildings fast enough, in bad times you have fire sales. Often real asset funds need to stop people from withdrawing funds in downturns because they have very illiquid assets. If these assets would be tokenised, it would be easier to sell very small slices of real estate to be able to pay people stepping out of real estate funds. Lots of illiquid investments can be made very liquid via tokenisation. Tokens can be put together into baskets and each basket has its own token. This concept allows the creation of indexes or funds. A real estate fund would sell a fund token and use the proceeds to buy small amounts of tokens in many buildings all over the world.

Insurance and protection was already mentioned but more advanced use cases can create mutuals with for instance farmers contributing premiums and reinsurers covering claim risk beyond the premiums. Lots of new types of risk will be able to be protected against. Complex catastrophic insurance bonds [CatBonds] can be fully automated as well as other insurance linked security.

Loans can be tokenised as well. Bonds, mortgages, and other types of debt can be tokenised. 

Trademarks, patents and other intellectual property can be tokenised and made investable.

Loans allow for leveraged positions or short-selling as well. Many financial instruments can be automated. Moving tokens from one wallet to another on public blockchains can cost as little as $0.0025/transactions and can be done in seconds. Rules around tokens can be automated inside smart contracts. Soul-bound tokens and decentralised sovereign identity can be used to create automated know your customer, professional investor and business processes. Even proof of funds can be automated, as such anti-money laundering, other financial regulation and especially regulatory reporting can be fully automated. Decentralised exchanges can offer automated market making and offer liquidity.

The level of automation can be even further enhanced by combining tokenisation with artificial intelligence. Robo-trading and robo-advisory are possible. We could see AI studying market conditions, desirability of buildings and lots of other aspects to automate investment in real asset portfolios. Risk prediction can be done by AI and protection can be automatically purchased or loans provided.

Robotaxis can be tokenised. Owners get a fraction of the returns. Insurance risk gets tokenised as well.

The biggest shift will be for VCs. They have asked startups to disrupt industries but always asked for a 10 pager slide deck as well. Investments often resemble more a casino than a scientific enterprise. What if automated VC funds would be set up where achieving goals like number of signups can trigger smaller automated investments in early stages.  AI and owners of tokens can vote on startups getting further larger investment in later stages. In this case do we really need VCs?

That is also the question for investment managers, insurers, fund managers, financial advisers,… Many of these professions will see partial or even full disruption. Stock markets and other intermediary institutions are not needed either.

The real estate, building, green energy, logistics, shipping, space travel and other industries can see larger projects happening because of more funds being available.

Leverage and opacity have often been the recipes for disaster. Tokenisation combined with out of control leverage in opaque and bad quality assets will result in future crises. However tokenisation will also bring a greener future, more affordable housing, better infrastructure, more risk protection,... So both urgency and caution are advised. You don't want to be too late and not being able to catch-up but neither do you want to hold worthless tokens bought at a premium price. What do you think the future of tokenisation will look like?